• thinkigcse.com

The Budget Line

Consumer’s choices are limited by the budget available. Total spending for goods and services can fall short of the budget constraint but may not exceed it.

Suppose a college student, Rocky, wants to go in for Music classes and Karate classes. A day spent pursuing either activity costs $50. Suppose she has $250 available to spend on these two activities each semester.

 

budget line graph

 

The budget line shows combinations of the Music classes and Karate classes Rocky could consume if the price of each activity is $50 and she has $250 available for them each semester. The slope of this budget line is -1, the negative of the price of Music classes divided by the price of Karate classes

For a consumer who buys only two goods, the budget constraint can be shown with a budget line. A budget linebudget lineGraphically shows the combinations of two goods a consumer can buy with a given budget shows graphically the combinations of two goods a consumer can buy with a given budget.

As the Price of karate classes will fall relative to Music classes, Rocky will substitute Karate classes for Music Classes. This is known as the substitution effect of a price change.

 

 

 

 

New Youtube Channel - ThinkIGCSE

Hi Everyone, I have launched a new YouTube channel with more than a 100 videos on  Economics and Business Studies, tailored specifically for IGCSE and A Level and IBDP students.

Subscribe now and join us on this learning journey: @thinkIGCSE

WHO'S ONLINE

We have 141 guests and no members online

Exciting News!

IMPORTANT MESSAGE

Quizzes and worksheets on this website have been developed in Flash format. Flash is no more supported by browsers. Therefore, you might see blank pages on some instances. Install Flash player plugin for Chrome from Chrome Web Store. Click here 

Similarly, for other web browsers you will have to activate the relevant flash player plugins.

Crosswords

PDF FILE

Download

MindMaps

PDF FILE

Download

Save
Cookies user preferences
We use cookies to ensure you to get the best experience on our website. If you decline the use of cookies, this website may not function as expected.
Accept all
Decline all
Read more
Analytics
Tools used to analyze the data to measure the effectiveness of a website and to understand how it works.
Google Analytics
Our website uses Google Analytics to understand how you interact with our site and improve your browsing experience. These cookies collect information in an anonymous form, including the number of visitors to the site, where visitors have come from, and the pages they visited. The data helps us analyze trends and user behavior to enhance our website's functionality and content.
Accept
Decline
Marketing
Set of techniques which have for object the commercial strategy and in particular the market study.
Marketing
Our website uses Google marketing cookies to deliver personalized ads and measure the effectiveness of our advertising campaigns. These cookies track your online activity to help us show you relevant ads on Google services and partner websites.
Accept
Decline